Macroprudential Policy: Case Study from a Tabletop Exercise

42 Pages Posted: 6 Oct 2015 Last revised: 30 Aug 2017

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Patrick de Fontnouvelle

Federal Reserve Bank of Boston - Supervision and Regulation

Emily Yang

Federal Reserve Bank of New York

Andrei Zlate

Federal Reserve Banks - Federal Reserve Bank of Boston

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-09-01

Abstract

Since the global financial crisis of 2007-09, policymakers and academics around the world have advocated the use of prudential tools for macroprudential purposes. This paper presents a macroprudential tabletop exercise that aimed at confronting Federal Reserve Bank presidents with a plausible, albeit hypothetical, macro-financial scenario that would lend itself to macroprudential considerations. In the tabletop exercise, the primary macroprudential objective was to reduce the likelihood and severity of possible future financial disruptions associated with the hypothetical overheating scenario. The scenario provided a path for key macroeconomic and financial variables, which were assumed to be observed through 2016:Q4, as well as the corresponding hypothetical projections for the interval from 2017:Q1 to 2018:Q4. Prudential tools under consideration included capital-based tools such as leverage ratios, countercyclical capital buffers, and sectoral capital requirements; liquidity-based tools such as liquidity coverage and net stable funding ratios; credit-based tools such as caps on loan-to-value ratios and margins; capital and liquidity stress testing; and supervisory guidance and moral suasion. In addition, participants were asked to consider using monetary policy tools for financial stability purposes. Under the hypothetical scenario, participants found many prudential tools less attractive owing to implementation lags and limited scope of application and favored those deemed to pose fewer implementation challenges, such as stress testing, margins on repo funding, and guidance. Also, monetary policy came more quickly to the fore as a financial stability tool than might have been thought before the exercise. The tabletop exercise abstracted from governance issues within the Federal Reserve System, focusing instead on economic mechanisms of alternative tools.

Keywords: financial stability, macroprudential policy, monetary policy, financial overheating, tabletop exercise

JEL Classification: E58, G01, G18

Suggested Citation

Adrian, Tobias and de Fontnouvelle, Patrick and Yang, Emily and Zlate, Andrei, Macroprudential Policy: Case Study from a Tabletop Exercise (2015-09-01). FRB of NY Staff Report No. 742. Available at SSRN: https://ssrn.com/abstract=2669835

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Patrick De Fontnouvelle

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3659 (Phone)
617-973-3219 (Fax)

Emily Yang

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Andrei Zlate

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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